PESTLE Analysis of Sri Lanka’s Energy Industry: Economic, Political, and Legal Factors

Source: CBSL
Situational Analysis
External Environment Analysis
PESTLE Analysis
This is a framework that is used to assess the environment that a company is operating or hoping to
launch a new product/service. In the case of __________, Energy industry in Sri Lanka has been
evaluated using this concept.
Economic Factors
Currently, Sri Lanka is going through an economic and political crisis in which the country is almost
empty on their foreign currency reserves which has drastically reduced the ability to import and largely
caused inflation. Consequently, the Sri Lankan rupee devalued by 44% against US dollar so far this year.
As a result, the country has been experiencing long power cuts as it was unable to import fuel to
generate electricity and is hoped to continue at least for the next three years to meet with the
increasing demands.
Sri Lanka has been greatly dependent on India for fuel to help allay its crisis. In January, 2022, India
signed off on a $400-million credit swap facility and deferred an Asian Clearing House settlement of
$515.2 million.
The Russian-Ukraine war can also worsen Sri Lanka’s economy as Russia is one of its largest importers of
tea, while arrivals from the warring nations form a major chunk of its tourists. With the ongoing crisis
and depreciated Ruble, declining imports and tourism from the region have hit Sri Lanka hard.
Political and Legal Factors

Due to the political turmoil in the country, many sectors were affected, especially the energy industry.
The CEB Engineers boycotted as a way of opposing government plans of amending the power sector
legislation (proposed by Power and Energy Minister Kanchana Wijesekara) to remove restrictions on
competitive bidding for renewable power projects. This amendment was believed to have connections
with the wind power deal with Adani Group.
Two ministries are responsible for policy formulation and supervision of energy sector institutions and
utilities: Ministry of Power, Energy and Business Development prepares energy policy, supervises CEB
and other entities and The Public Utilities Commission of Sri Lanka (PUCSL) ensures safety regulation of
electricity industry.
Moreover, according to the budget, a seven-year exemption period was granted for any “renewable
energy project” established with a capacity to generate not less than one hundred Mega Watts solar or
wind power and supplies such power to national grid.
**Taxes**
The Electricity Act 2009 introduced limited unbundling, where all businesses remain under one
corporate ownership, while generation, transmission, and distribution functions were separately
licensed.
Technological Factors
Although Sri Lanka is behind in technology compared to developed countries, it is striving to bring in
advanced technology for power generation. Grid-connected solar power technology is becoming
popular among residential, commercial and industrial building owners.
Moreover, there are three emerging technologies in ESSs (large-scale Energy Storage Systems) that
could become viable for solar and wind in the near future.

 Smart batteries
 Thermal energy storage
 Hydrogen fuel cells
In addition, advanced technology is further used in improving the reliability in transmission and
distribution of electricity. Sophisticated software and hardware are readily accessible in the country to
maintain commercial quality of services by distribution utilities.
Potential offered by vehicle energy storage systems (ESS) will be studied considering ESS as a local
standby energy storage device, deploying those as an automated demand response (ADR) option and a
load profile management too.
Development of novel information and communications technology (ICT) applications such as for power
system automation, remote control, distributed real time event and data acquisition systems, and smart
metering will be encouraged.
Environmental and natural Factors
Nearly all parts of the electricity system can affect the environment, but varies in intensity. Energy
sector utilities are forced to strictly comply with environmental standards stipulated by the government.
There are concerns particularly for particulate matter, sulfur dioxide, carbon dioxide and source-specific
atmospheric emissions which is regulated by Central Environmental Authority.
Due to climate change and other environmental degradation, there is a high concern for alternative and
sustainable options such as non-conventional renewables, inter-fuel substitution, sector reforms and
alternatives to coal.
Moreover, Sri Lanka aspires to become a carbon neutral country by 2050 by making the most out of the
energy available and developing cleaner energy resources.
Social and demographic Factors

Electricity users can be grouped into several sectors. Therein, the residential
demand constitutes a large percentage of the overall electrical energy demand. For example,
domestic buildings consume around 40% of global generated energy (Saberbari & Saboori,
2014). Electricity users can be grouped into several sectors. Therein, the residential
demand constitutes a large percentage of the overall electrical energy demand. For example,
domestic buildings consume around 40% of global generated energy (Saberbari & Saboori,
2014). Family size, income levels, lifestyle choices, age structure are some determinants of electricity
usage.
Usually household energy consumption increases with the family income, so it is
reasonable to use family income as a factor to predict the energy usage of family. Here the
lowest income group uses a few electrical appliances and when the income goes high people
tend to use more appliances. Hence more electricity to have more comfort in life.
This graph shows that power consumption gradually increases up to family size 6,
and families that have more than six members show sudden increase.
***Skilled migration***